Accounting
Dissertation – Board Structure and Company Performance (Part 4 of 5)

CHAPTER 4: DATA ANALYSIS

4.1 Data Presentation

In this section, the results simulated from SPSS will be presented. As discussed earlier, correlation coefficient will be used to investigate the degree of association between company performances to proportion of independent directors in Malaysia. A total of five dimensions, related to the financial performance and stock returns of the companies in Malaysia will be investigated. The company specific financial variables investigated include: Return of Equity (ROE), growth in revenue, growth in Earnings per Share (EPS), payout ratio and stock returns. The time period investigated is from year 2006 to year 2010. In this study, the discovery of statistically significant correlation between stock returns to any of these variables will suggest that these specific variables may have meaningful economic reasons and relationships with the proportion of independent directors in board structure. However, in event that none of the statistically significant relationships can be found, then it can be concluded that proportion of independent directors cannot be used to predict stock returns, or to predict financial performance of a firm as proxy by Return of Equity (ROE), growth in revenue, and growth in Earnings per Share (EPS).

 

table4-1

 

In Table 4.1 above, the Pearson correlation coefficient between return on equity (ROE) and ratio of independent director in board structure in Malaysia is shown. The symbols used in the table will be explained in Table 4.2 below.

 

4-2

 

As it can be observed from table 4.1 above, it is noted that variables Ratio_Ind is not statistically significantly correlated with all of the following variables, namely, ROE_2006, ROE_2007, ROE_2008, ROE_2009, ROE_2010, and ROE_AVE. Then, it is even discovered that all of the sign of the correlation is negative, suggesting that the ROE achievements of firms being studied tend to be inversely related to the proportion of independent director in the board structure. However, none of the correlation coefficient is statistically significant. Thus, in short, it is concluded that there is no relationships between ROE of firms to the proportion of independent directors in board structure. A side finding from Table 4.1 is that firms that have high ROE achievement are found to tend to have similar achievement in the future, and vice versa. This suggests that the profitability of a firm, as measured by ROE tend to persist. Investors may be able to identify those investment targets by referring to historical ROE of the respective firms, to predict how these firms may fare in the future.

 

4-3

 

In Table 4.3 above, the Pearson correlation coefficient between growth of revenue and ratio of independent director in board structure in Malaysia is shown. The symbols used in the table will be explained in Table 4.4 below.

 

4-4

 

As it can be observed from table 4.3 above, it is noted that variables Ratio_Ind is not statistically significantly correlated with all of the following variables, namely, Revenue_2006, Revenue_2007, Revenue_2008, Revenue_2009, Revenue_2010, and Revenue_AVE. Most of the sign of these correlation coefficients are negative. However, as none of the correlation coefficient is statistically significant, it is then concluded that there is no relationships between growths of revenue of these firms being studied to the proportion of independent directors in board structure. Besides, it is found that the growth of revenue of a particular firm cannot be used to predict the future growth of revenue for the same firm. This suggests that firms that able to achieve growth of revenue may not able to keep up the track records.

 

4-5

 

In Table 4.5 above, the Pearson correlation coefficient between growth of Earnings per Share (EPS) and ratio of independent director in board structure in Malaysia is shown. The symbols used in the table will be explained in Table 4.6 below.

 

4-6

 

As it can be observed from table 4.5 above, it is noted that variables Ratio_Ind is not statistically significantly correlated with all of the following variables, namely, EPS_2006, EPS_2007, EPS_2008, EPS_2009, EPS_2010, and EPS_AVE. However, the sign of the correlation coefficients throughout the years is positive. The sign of correlation is consistent with the earlier proposition argued or assumed in this study, whereby the higher the proportion of independent directors in the board structure, the better the corporate governance of the particular firm, and hence, the better the corporate performance of these firms. However, as suggested by the absence of statistically significant correlation coefficient between the firms, no conclusive statements can be derived from the relationships between growth of Earnings per Share (EPS) and ratio of independent director in board structure in Malaysia.

 

4-7

 

In Table 4.7 above, the Pearson correlation coefficient between growth of payout ratio and ratio of independent director in board structure in Malaysia is shown. The symbols used in the table will be explained in Table 4.8 below.

 

4-8

 

As it can be observed from table 4.7 above, it is noted that variables Ratio_Ind is not statistically significantly correlated with all of the following variables, namely, Payout_2006, Payout_2007, Payout_2008, Payout_2009, Payout_2010, and Payout_AVE. As shown in the table, most of the sign of these correlation coefficients are negative. However, as none of the correlation coefficient is statistically significant, it is then concluded that there is no relationships between payout ratios of these firms being studied to the proportion of independent directors in board structure. However, a closer investigation found that the payout ratios of a firm tend to be correlation with each others from one financial year to the next. Except in 2009, whereby the world suffered from Great Recession (Malaysia, not excluded), the payout ratios of a firm tend to correlate from one year to the next. This suggests that there are some empirical evidences supporting that firms tend to retain a fix payout ratio in terms of their respective dividend policy in Malaysia.

 

4-9

 

In Table 4.9 above, the Pearson correlation coefficient between stock returns and ratio of independent director in board structure in Malaysia is shown. The symbols used in the table will be explained in Table 4.10 below.

 

4-10

 

As it can be observed from table 4.9 above, it is noted that variables Ratio_Ind is not statistically significantly correlated with all of the following variables, namely, SR_2006, SR_2007, SR_2008, SR_2009, SR_2010, and SR_AVE. It can be observed that correlation coefficients between stock returns and proportion of independent directors are near zero for most of the cases (i.e., financial years). As such, it can be confidently concluded that it is then concluded that there is no relationships between stock returns of these firms being studied to the proportion of independent directors in board structure.

4.2 Data Analysis

Overall, it can be confidently concluded that there is absolutely no statistically significant relationships between proportion of independent directors to ROE, growth in revenue, growth in EPS, payout ratio and stock returns of publicly listed firms being investigated in Malaysia. The notion that the higher the proportion of independent directors in the board structure, the better the corporate governance of the particular firm, and hence, the better the corporate performance of these firms cannot be proved. There are however, several statistically significant relationships found between company specifics financial variables. For example, it is found that firms that have high ROE achievement are found to tend to have similar achievement in the future, and vice versa. This suggests that the profitability of a firm, as measured by ROE tend to persist. For this, investors may be able to identify those investment targets by referring to historical ROE of the respective firms, to predict how these firms may fare in the future. Such a findings also suggest that investors that have long term horizon and orientation in investing is correct when they employ historical ROE of a firm to predict future profitability of a company in the future. Then, there was also some empirical evidences supporting the notion that the payout ratios of a firm tend to be correlation with each others from one financial year to the next. As discussed previously, except in 2009, whereby the world suffered from Great Recession (Malaysia, not excluded), the payout ratios of a firm tend to correlate from one year to the next. This suggests that there are some empirical evidences supporting that firms tend to retain a fix payout ratio in terms of their respective dividend policy in Malaysia. This is consistent with corporate finance theory whereby companies can set their dividend policy according to a fix payout ratio.

 

 

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